OECD releases cryptoasset reporting framework and CRS amendments

May 2022

In brief

The OECD on March 22 released a public consultation document regarding the Crypto-Asset Reporting Framework (CARF) — a new global tax transparency framework on the development of automatic information exchange with respect to crypto-assets — as well as proposed amendments to the existing Common Reporting Standard (CRS). The consultation document is intended to inform policy decision makers on the possible adoption of CARF and its related design components. The proposed framework has been developed in light of concerns that crypto-assets could be used to undermine the existing international tax transparency framework, including CRS.

CARF would require emerging digital market intermediaries, such as crypto-asset exchanges and wallet providers, to apply due-diligence procedures to identify their customers and to report annually customers’ aggregate exchanges and transfers to their respective tax administration.

The OECD also proposes updates to CRS that seek to bring new digital financial products within CRS and aim to improve the quality and usability of CRS reporting. The updates would address points raised by businesses as well as governments since the adoption of CRS. 

Observation: An effective framework rests on establishing a definition of crypto-assets that acknowledges the variability in the character, utility, and technology of those assets. Definitions that do not reflect this variability would be either too broad or too narrow in capturing the appropriate assets deemed to warrant being reported to tax authorities. 

The OECD requested public comments with regard to the consultation document by April 29. The OECD is expected to consider this feedback and provide an update to the G20 meeting in October 2022.

Observation: The comment period for such a significant proposal may have been too short to generate sufficient quality comments. Many organizations that potentially would be impacted by the framework did not have time to analyze how this framework would have direct application.

Action item: So far, crypto has not been the focus of CRS and the automatic exchange of information regimes. This will change with the OECD’s newly released plan. Banks and other financial market participants that are classified as reporting financial institutions under CRS likely would be heavily impacted by this new framework and should take steps to prepare for its implementation.

In detail


The global financial services sector recently has been experiencing a rapid adoption of the use of crypto-assets for a range of investment and financial activities. Unlike traditional financial products, crypto-assets can be transferred and held without the intervention of traditional financial intermediaries and without any central administrator having full visibility on either the transactions carried out or crypto-asset holdings. 

As a result, government officials around the world have expressed their concern that crypto-assets could be exploited to undermine existing international tax transparency initiatives (e.g., CRS). Against this background, the OECD is seeking to modernize the tax transparency framework by introducing CARF and proposing amendments to CRS.

The CARF framework

CARF has been designed as a response to challenges that the growing crypto-assets market is considered to pose for tax administrations’ visibility to taxpayer information and taxpayer compliance. These challenges are twofold. First, crypto-assets can be issued, recorded, transferred, and stored in a decentralized manner without intervention of traditional financial intermediaries or central administrators. Second, the new set of intermediaries such as crypto-asset exchanges and wallet providers may be subject to limited regulatory oversight and currently are not included within the CRS. 

CARF is designed to achieve the collection and exchange of information on these crypto-asset transactions in a manner similar to CRS, but at the same time quite different. The release includes the CARF rules and commentary that is to be transposed into domestic law. The framework for the automatic exchange of information between jurisdictions and the technical solutions to support the exchange of information are not included. These building blocks are to be developed further once the rules and commentary are completed.

Observation: The CARF is similar to CRS only so far as the information collected is meant to be exchanged automatically with the participating jurisdictions. CARF deviates from the CRS both in the onboarding due-diligence process and in the type of tax information required to be reported. For example, CARF would require reporting of crypto-assets that are acquired. The acquisition of an asset is not typically viewed as a realization and recognition event marking the time for taxation. 

Who needs to report?

Persons that as a business effect crypto-asset transactions or make available a platform for such transactions for or on behalf of a customer would be considered “reporting crypto-asset service providers” subject to customer due diligence and annual reporting obligations on crypto-assets.

Terms such as “crypto-asset” and “specified electronic money product” would be defined to capture a broad variety of digital asset types, including future asset types that function in a similar manner. Examples of digital financial assets captured by CARF include stablecoins, derivatives issued as crypto-assets, and certain non-fungible tokens (NFTs). The proposed updates to the CRS model also target these types of products where traditional financial intermediaries are involved, whereas CARF targets the transactions where no such intermediaries are involved.

CARF and CRS provide exceptions for specific crypto-asset types that are deemed to have low tax compliance risks. These exceptions relate to so-called “closed loop crypto assets” — intended to be redeemed against goods and services within a clearly defined, limited setting and certain central bank digital currencies. 

Observation:  The central goal of CRS is to detect and deter tax avoidance. The current CARF proposal should be reviewed as to whether it is consistent with this central goal. Efforts should be taken to determine whether low-risk assets and transactions would be excluded from CARF’s scope. Crypto-assets such as stablecoins that are intended to be constrained to a fixed value could be considered low risk with the proper controls.

What needs to be reported?

Transactions to be reported on an aggregated basis by type of crypto-asset include both crypto-to-crypto and crypto-asset-to-official currency transactions. The reporting data should indicate in an official currency the value of a crypto-asset at acquisition and the value of the gross proceeds at disposition. For crypto-to-crypto transactions, both the value of the disposed, as well as the acquired, crypto-asset must be reported in official currency. In addition to crypto dispositions and acquisitions, reporting would be required for merchant transactions settled in crypto and transfers of crypto-assets.

Observation:  The planned reporting is significantly different than for traditional currency transactions. Specifically, the CARF would require reporting crypto-asset service providers to report merchant transactions both to the buyer and merchant.

The customer due-diligence procedures build on the self-certification based requirement in CRS and on existing anti-money laundering/know your customer (AML/KYC) obligations from the 2012 Financial Action Task Force (FATF) recommendations. Consistency between CARF and CRS should reduce the burden for reporting crypto-asset services providers, especially when they also are subject to CRS. As for CRS, CARF provides for a phase-in period to perform the due-diligence procedures on existing customers.

Observation:  Self-certifications collected by reporting financial institutions under CRS are effective until there is a substantial change in circumstances that causes the self-certification to be incorrect. Reporting crypto-asset service providers that collect self-certification can rely on the documentation only for the earlier of 36 months or the date of a substantial change in circumstances which causes the self-certification to be incorrect. 

Amendments to CRS

The OECD is conducting its first comprehensive review of CRS, soliciting input from businesses as well as governments. This has resulted in proposed updates to the CRS model that aim to (1) bring new digital financial products within CRS to achieve a level-playing field between new digital money products and traditional bank and other CRS reportable accounts, and (2) improve the quality and usability of existing CRS reporting.

Covering new digital financial products

The OECD proposes to bring digital money products (e.g., coverage of derivatives referencing crypto-assets and investment entities investing in crypto-assets) in scope of the existing CRS framework by broadening the definitions of “financial institution,” “financial account,” and “financial asset” to cover so-called “specified electronic money products,” “central bank digital currencies,” and “relevant crypto assets.” These new terms are consistent with the terms used in CARF and seek to capture a broad variety of digital assets. 

The OECD acknowledges that certain assets simultaneously may be subject to reporting as crypto-assets under the CARF and financial assets under CRS. To address duplicate reporting, the OECD proposes that where the disposal of such assets may result in duplicative reporting, the gross proceeds upon such disposal are to be reported only under CARF.

Amendments to improve quality and usability of CRS reporting

The OECD proposes amendments to a variety of existing CRS sections with ranging impact, including: 

  • Section I: Reporting requirements: New reportable data elements such as controlling person roles, preexisting or new account indicator, indicator whether a valid self-certification has been obtained, data on whether an account is jointly held, and type of financial account indicator. 
  • Sections V and VI: Due-diligence requirements: Rules to determine whether AML/KYC procedures applied for preexisting and new entity accounts are substantially similar to the 2012 FATF recommendations.
  • Sections II - VII: Due-diligence requirements: Inclusion of a fall back procedure for exceptional cases to temporarily determine residence of a new account holder based on the due-diligence rules of a preexisting account holder.
  • Section VIII(C)(17)(e): Definition of excluded account: Qualification of certain capital contribution accounts as excluded accounts.
  • Commentary to the depository institution definition: Inclusion of entities that are licensed to engage in certain banking activities, but actually are not so engaged.
  • Commentary to the investment entity definition: Clarification that, in line with the FATF recommendations, investors of funds can be considered “customers” and that the funds themselves can be considered to conduct activities “as a business.” 
  • Commentary to dual-resident account-holders: Requirement to report account holders with multiple tax residencies as tax resident in all these tax jurisdictions, regardless of tie-breaker rules in applicable tax conventions.
  • Addition to due-diligence procedures: Allow financial institutions to meet due-diligence requirements using government verification services (GVS). 
  • Commentary on controlling persons of publicly traded entities: Acknowledgement of FATF exclusion from controlling person disclosure.
  • Integration of citizenship by investment (CBI) and residence by investment (RBI) guidance within CRS: Reiteration in explanatory guidance that financial institutions should take into account information of certain potentially high-risk citizenship and residence by investment (CBI/RBI) schemes when determining whether it has a reason to know that a self-certification or documentary evidence is incorrect or unreliable.

Moreover, to increase the usability of the CRS, the OECD has incorporated some aspects of the online FAQs to the CRS commentary and has included similar transitional measures as included at the start of CRS to allow financial institutions time to implement the revised model.

Observation: The planned CRS modifications bolsters the fact that the CRS is not common. Not all participating jurisdictions can be expected to adopt these proposals, nor are they required to do so. This will result in some jurisdictions requiring certain data and others not.

Contact us

Mazhar Wani

Partner, FinTech Tax Leader, PwC US

Follow us